Category Nick Rowe
Keynes’ GT Chapter 3
Keynes' "aggregate supply function" in chapter 3 of the General Theory is just the "classical" labour demand function plus the "classical" production function. Except for the weird presentation, there is nothing new there. It is old and boring. It is Keynes' "aggregate demand function" that is new and exciting. [Update: See Roger Farmer's response.]
The 45 degree line means Y=min{Yd,Ys}
(I'm disagreeing with Roger Farmer on the interpretation of the 45 degree line. I say the 45 degree line is not a supply curve. This post explains what I think it is.) Here's the Keynesian Cross diagram: How should we interpret the green 45 degree line?
Swapping the assignment of targets to instruments
Before leaving on his pilgrimage, the King appoints two ministers. He gives the first minister control of instrument m, and tells him to set m so that the target variable M is equal to the target M*. He gives the second minister control of instrument f, and tells him to set f so that the […]
The anti-NK model and minimum wages
I present a simple model that has exactly the opposite predictions to the standard New Keynesian model: if the central bank sets the nominal interest rate too high (too low), that will cause an increase (a decrease) in output and employment. If you think that an increase in the minimum wage will cause increased employment, […]
A simple New Keynesian brain-teaser
Update: I sketch my own answer in the comments below. This is a question for all students of New Keynesian macroeconomics. I mean "students" in the sense of "those who study", so that includes the profs too. It is a very basic question. There is no fancy math to fool you. If you cannot answer […]
Two simple NK pictures
I'm staying out of this argument. But I can't resist a challenge to show the New Keynesian model in pictures, with indifference curves, production functions, and budget lines. I can't do it in one picture. I need two.
Capital income in a recession
Profits and income from capital are not the same thing, though they are mixed together in the national accounts. (Paul Krugman has made this point before.) I work through some simple examples with sticky prices and/or sticky wages, where income from capital always falls in a recession caused by tight monetary policy. [I add an […]
Chris House is a Market Monetarist!
OK, maybe I exaggerate a little. But he's at least halfway there. One of the key points that Market Monetarists (Scott Sumner especially) keep making (and that keeps getting ignored) is that low (nominal and real) interest rates are not a sign that monetary policy is loose, but are a consequence of monetary policy being […]
Relative price shocks, price-level shocks, and who moves first
Suppose a real shock hits the economy. It affects relative prices. The prices of the green firms must rise relative to the prices of the red firms. The prices of the red firms must fall relative to the prices of the green firms. Same thing. But which happens? Do the green prices rise, or do […]
Scotland, Quebec, and currency union
I don't have anything to add to this, except to express my relief that the Permanent Secretary to H M Treasury (UK) said what needed to be said, especially given the dreadful experience of the Eurozone currency union (which is not over yet in my opinion), and that Canadians should read it. (H/T David Smith).
Worthwhile Canadian Initiative 
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